Coronavirus Blog Series: Maximising your Debt Recovery

Published 13 May 2020

At this time, many businesses will be struggling to manage cashflow and it is important to remember that when it is needed the debt recovery process forms a crucial part of credit control procedures. One thing that businesses will want to ensure is that they have claimed everything that they are entitled to, not just the principal debt.

For business to business debts under the Late Payment of Commercial Debts (Interest) Act 1998 & 2002 Regulations, businesses may be entitled to claim interest at a rate of 8% above the Bank Of England base rate and in addition to that compensation of between £40 and £100 per invoice outstanding as the following table outlines:

Value of Debt Compensation
Up to £999.99 £40
Between £1,000 – £9,999 £70
£10,000 or more £100

One mistake businesses often make is not realising that this late payment compensation may be added to each invoice outstanding.

Businesses have up to 6 years to recover the debt or it may be statute barred. Particularly for the more historic debts within this time limit the interest can be rather substantial. Since 16 March 2013 additional fees can be claimed for costs if the compensation amount does not exceed the “reasonable costs of the supplier in recovering the debt”.

Example Debt

Bob’s Builders Ltd provided building materials to Debt Dodgers Ltd. Debt Dodgers Ltd are meant to make payment within 30 days but having failed to make payments they have stopped answering calls and letters from Bob’s Builders Ltd. On 12th May 2020 Bob’s Builders Ltd pursues the debt owed to them and maximises the amount they are owed through application of the Late Payment of Commercial Debts (Interest) Act 1998 & 2002 Regulations as follows:

Amount Date of Invoice Late Payment Comp Interest
£3,000 08/02/2018 £70 £522.74
£1,800 12/09/2018 £70 £228.03
£500 03/03/2019 £40 £44.49
£60 09/06/2019 £40 £4.05
Sub Total £5,360 –            £220 £799.31

Bob’s Builders Ltd are entitled to an extra £1019.31 through the application of interest and late payment compensation. Overall, they would seek to recover £6,379.31.

During these difficult times, it is important to make sure you do not lose out on monies you are legally entitled to. Whilst every case is different and must be assessed on its own merit, please do contact us at your earliest convenience to discuss how our Insolvency and Debt Recovery team can assist you.

This article is for general guidance only and should not be regarded as a substitute for professional legal advice.

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